Citibank 2008 Annual Report Download - page 238

underwriting procedures and risk management, and the resulting negative
impact to Freddie’s capital.
Ambac Financial Group. On May 9, 2008, four putative class actions
brought by shareholders of Ambac Financial Group, Inc., pending in the
United States District Court for the Southern District of New York, were
consolidated under the caption IN RE AMBAC FINANCIAL GROUP, INC.
SECURITIES LITIGATION. On August 22, 2008, plaintiffs filed a consolidated
amended class action complaint alleging violations of Sections 11 and 12 of
the Securities Act of 1933 arising out of allegedly false and misleading
statements contained in the registration statements and prospectuses issued
in connection with offerings of Ambac securities, some of which were
underwritten by CGMI. Defendants filed a motion to dismiss the complaint
on October 21, 2008.
AIG. Beginning in October 2008, four putative class actions were filed in
the United States District Court for the Southern District of New York by
American International Group, Inc. (“AIG”) investors and shareholders.
These actions allege violations of Sections 11, 12, and 15 of the Securities Act
of 1933 arising out of allegedly false and misleading statements contained in
the registration statements and prospectuses issued in connection with
offerings of AIG debt securities and common stock, some of which were
underwritten by CGMI.
Public Nuisance and Related Actions. City of Cleveland v. Ameriquest
Mortgage Securities, Inc.: On January 10, 2008, the City of Cleveland, Ohio
sued Citigroup, along with a number of other financial institutions, alleging
that defendants’ real estate lending activities constitute a public nuisance
under Ohio common law. On October 8, 2008, the City of Cleveland filed a
second amended complaint against numerous financial institutions,
including CGMI and Citibank, in the United States District Court for the
Northern District of Ohio. Defendants filed a motion to dismiss the complaint
on November 24, 2008.
On September 30, 2008, Citibank, N.A. voluntarily dismissed its federal
action against the City of Cleveland, Ohio seeking declaratory and injunctive
relief on the ground that the City of Cleveland’s public nuisance claim,
asserted in a separate action, is preempted by federal law and may not be
asserted against national banks and their operating subsidiaries.
Brewton v. Deutsche Bank Trust Co.: On February 27, 2008, plaintiff,
proceeding pro se, filed a complaint against numerous financial institutions,
including Citigroup, alleging that defendants’ real estate lending activities
constitute a public nuisance under Ohio common law. The case was removed
to the United States District Court for the Northern District of Ohio. On
March 27, 2008, Citigroup answered the complaint. On November 14, 2008, the
District Court ordered plaintiff to file a brief by December 19, 2008,
demonstrating why he has standing to bring his claims. No such brief was filed.
City of Cleveland v. J.P. Morgan Chase Bank, N.A.: On August 22, 2008,
the City of Cleveland filed a complaint in Ohio state court against numerous
financial institutions, including CitiMortgage and CitiFinancial, alleging
violations of the Ohio Corrupt Activities Act and seeking demolition costs.
CitiMortgage and CitiFinancial filed a motion to sever on October 30, 2008.
Other cities have or may file similar complaints.
Regulatory Matters. Citigroup and certain of its affiliates also have
received subpoenas and/or requests for information from various
governmental and self-regulatory agencies relating to subprime mortgage–
related activities. Citigroup and its affiliates are cooperating fully with such
requests.
Auction Rate Securities–Related Litigation and Other
Matters
Beginning in March 2008, Citigroup, CGMI, and Smith Barney, and a
number of current and former officers, directors, and employees, have been
named as defendants in numerous complaints brought by Citigroup
shareholders concerning Auction Rate Securities (“ARS”).
Securities Actions:Beginning in March 2008, Citigroup, CGMI and
Smith Barney were named as defendants in a series of putative class action
lawsuits related to ARS. These actions have been consolidated into a single
action pending in the United States District Court for the Southern District of
New York, captioned IN RE CITIGROUP AUCTION RATE SECURITIES
LITIGATION. A consolidated amended complaint was filed on August 25,
2008, asserting claims for market manipulation under Sections 10 and 20 of
the Securities Exchange Act of 1934, violations of the Investment Advisers Act
and various state Deceptive Practices Acts, as well as claims for breach of
fiduciary duty and injunctive relief. Defendants filed a motion to dismiss the
complaint on October 24, 2008, which was fully briefed on January 23, 2009.
Finn v. Smith Barney, et al.: On March 21, 2008, an investor filed a
complaint against Citigroup, CGMI and Smith Barney, and his financial
advisor in the United States District Court for the Southern District of New
York, alleging violations of Sections 10 and 20 of the Securities Exchange Act
of 1934 and Section 17 of the Securities Act of 1933, as well as claims for
fraud, negligent misrepresentation, suitability, breach of fiduciary duty, and
violation of applicable NASD and FINRA conduct rules, arising out of
plaintiff’s investment in ARS. This action is currently stayed.
Hansen Beverage Co. v. Citigroup Inc., et al.: On July 11, 2008, a
complaint was filed against Citigroup, CGMI and Smith Barney, alleging
violations of Sections 10 and 20 of the Securities Exchange Act of 1934 and
the Investment Advisers Act arising out of plaintiff’s investment in ARS. On
September 22, 2008, the Citigroup defendants filed a motion to compel
arbitration, which was granted on October 10, 2008. A motion to reconsider
the District Court’s decision was denied on October 21, 2008. This action is
currently stayed, pending arbitration.
Derivative Action:A derivative action, LOUISIANA MUNICIPAL
POLICE EMPLOYEES’ RETIREMENT SYSTEM V. PANDIT, et al., was filed
against certain officers and directors of Citigroup in the Southern District of
New York on August 20, 2008, asserting state law claims for breach of
fiduciary duty, insider selling, abuse of control, and gross mismanagement
and federal securities fraud related to ARS. On November 7, 2008, defendants
filed a motion to dismiss the action.
Antitrust Actions:MAYOR & CITY COUNCIL OF BALTIMORE,
MARYLAND v. CITIGROUP INC., ET AL. and RUSSELL MAYFIELD, ET AL. v.
CITIGROUP INC., ET AL., are lawsuits filed in the Southern District of New
York on behalf of a purported class of ARS issuers and investors, respectively,
against Citigroup, CGMI and various other financial institutions. In these
actions, plaintiffs allege violations of Section 1 of the Sherman Act arising
out of defendants’ alleged conspiracy to artificially restrain trade in the ARS
market. The parties currently are briefing defendants’ motions to dismiss
these complaints, which were filed on January 15, 2009.
Other Matters:
Arbitrations. In addition to the various lawsuits discussed above, several
arbitrations are pending against Citigroup and certain of its affiliates
relating to ARS investments.
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